Asking a lender for their current rates is as common as asking the weatherman for the forecast. Lenders are often competing against one another based on the current APR (annual percentage rate) they are offering, so a busy lender would answer the â€˜What are your rates?â€™ question numerous times each day. Though they are often very close, they can and do vary from one lender to another. Letâ€™s look into why that is.
The Rate Sheet
Each morning, rate sheets are distributed across different mortgage organizations. Since mortgage bankers are lending their companyâ€™s own money, their rate sheet comes from their company. Mortgage brokers coordinate across many different wholesale lenders, so they get several different rate sheets each morning. These used to be delivered via fax, but more commonly come via e-mail or secure website now.
If the stock market is particularly unstable, there could be rate sheet revisions mid-day. Though every lender has them, these rate sheets are not for public consumption. Basically, they detail what a loan will cost the lender. For example, on the chart below, for the 4.25% rate that is being offered, the loan will cost the lender 2 â€œpointsâ€ or 2 percent of the loan.
Arriving at a Price
As you can see, different rates incur different costs. Higher rates cost less than lower rates. The reason being that the lender will make their money earning more interest over the life of the loan. Because of this, they are able to charge less. The same is true for the lower rates. Since they will earn less in interest over time, they need to charge more upfront.
At zero points, the loan is set at what is called â€˜parâ€™ pricing. If inquiring about a mortgage, always ask for the par price. If you want to tweak rates, you can do that, but find out what the lowest cost option is first.
The numbers in parentheses are called rebate prices. At these rates, instead of incurring a cost, the branch or loan officer paid back this amount for originating the loan. The rates get higher as credit scores decrease, as the loan officer will likely have to track down more documents and do more research, etc. those with higher credit scores.
Loan officers are almost always paid on commission just like REALTORSÂ®. Also like REALTORSÂ®, their commission is subject to a split, meaning they keep some and their branch keeps some. Any fees collected at closing that are not discount points go to the lender and are not part of the loan officers split commission.
What This Means For You
Each lender has parameters of how much they need to make per loan, so prior to quoting a rate to the public, they factor in what they need to earn. They usually have some flexibility between the minimum and maximum that they will charge but most have a set price they work for and thatâ€™s that.
If we look at the rates above, if the lender decides to earn 1 point, they just add that to the price. The zero point loan would be 5%. If you wanted a rate of 4.75%, it would cost you 1 point. Going further, if a lender were to advertise â€˜No Fees, No Points,â€™ they would charge you a higher rate and use the rebate for the fees.
Now you know where all those numbers come from. Lenders costs are usually pretty close throughout the industry. The only thing you really have to worry about is getting your loan done on time. Asking your Realtor for recommendations is the best way to ensure you get a lender who can make the deal happen.